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FedEx Freight network redesign is off to strong start

By Jeff Berman, Group News Editor
April 28, 2011

Despite being faced with very difficult weather conditions at the outset of launching its new unified, streamlined network at the end of January, FedEx Freight, the less-than-truckload (LTL) subsidiary of FedEx, recently told LM that the new network is off to a strong start.

At the core of the new network launch is the company’s approach to offer shippers the choice of two levels of service from a single company. Both services, FedEx Freight Priority and FedEx Freight Economy, are designed to meet the needs of today’s LTL shippers.

Prior to the launch of the revamped LTL network, FedEx Freight President and CEO Bill Logue described it as a growth strategy to grow its business profitably for the long-term and a “game changer” designed to simplify what FedEx determined was a too complicated LTL shipping process. The idea, he said, was to give LTL shippers two options, based on speed of delivery and price.

The new FedEx Freight network is comprised of FedEx Freight Priority, a fast-transit choice for reliable, time-sensitive LTL freight delivery, and FedEx Freight Economy, a less costly choice for reliable LTL freight delivery. For less time-sensitive freight, customers benefit by trading time for savings with FedEx Freight Economy. And since it was introduced, FedEx has increased its use of intermodal rail in both the Eastern and Western sectors of the country in order to cut down its line-haul costs, creating more efficiency.

FedEx has streamlined its national terminal footprint in conjunction with the roll out. In closing roughly 100 terminals, Logue said in January greater efficiencies will be created through what is now a 355-terminal footprint. Operationally, there will be two distinct line hauls—priority and economy—in what rival trucking officials admit must be a delicate, precise and coordinated terminal operation. It will have 45 “priority hubs” and two “economy” hubs.

But the operational key, he said, are 10 “dual use hubs” strategically placed around the country. These are close to rail hubs for intermodal line haul, but also can be used to move out priority freight as well.

In an interview with LM last week, Logue said he could not be more pleased with the progress FedEx Freight has made with this endeavor to date, despite the fact that the first two weeks of it brought terrible weather conditions for moving freight.

“While all carriers were dealing with the elements, we were dealing with the weather and rolling out a new network at the same time,” said Logue. “We got through the first few weeks of February and since then the network has gotten better and stronger every day.”

While a tremendous amount of planning and effort went into this effort, Logue said until it really happens is when the appropriate tweaks and adjustments can be made.

What’s more, he noted that the new network is being deployed at a time when the economy—and the LTL industry—are firmly in a recovery mode, which is especially true considering the cumulative 25 percent decline in LTL industry revenue during the downturn, with the industry recovering 9 percent of those losses in 2010.

In an effort to get back to where it was prior to the downturn, FedEx Freight, like all LTL carriers, is firmly focused on yield management.

“We are very happy with our continued improvement on the yield front and are trying to make sure customers see the value in the FedEx portfolio on the LTL side,” said Logue. “We are also seeing strong customer feedback and a good mix of dual users, which are the types of customers we want.”

One of the biggest changes in what FedEx Freight is doing compared to more traditional LTL, said Logue, is offering shippers a choice of service offerings for each shipment and lane, which, he said, is vital in an industry with so many strong players.

When FedEx first announced its planned network changes for FedEx Freight last September, Robert W. Baird analyst Jon Langenfeld wrote in a research note that this restructuring was expected, and he also commented that this is positive news for other LTL carriers, because FedEx Freight is expected to cede share and focus on raising freight rates.

About the Author

Jeff BermanGroup News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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